Tuesday, November 23, 2004

More fun with the dollar. From the Financial Times today:
The US dollar fell to a fresh low against the euro on Tuesday, breaching the $1.31 barrier for the first time.

The cataylst was a hint from the Russian central bank that it plans to step up its policy of switching its foreign exchange reserves into euros, at the expense of the dollar…

…More importantly, the Russian comments highlighted the prospect of Asian central banks with larger reserves following suit. China has an estimated 80 per cent of its $515bn of reserves in dollars, while Middle Eastern central banks were rumoured to be selling dollars and buying sterling on Tuesday.

…The greenback also fell 0.6 per cent to a fresh eight-year low of SFr1.1564 against the Swiss franc, 0.7 per cent to a nine-month low of A$0.7877 against the Australian dollar, 0.7 per cent to a four-month low of $1.8726 against sterling and 0.9 per cent to a seven-month low of Rbs28.49 against the rouble itself.

Atrios has a report that Morgan Stanley's chief economist Stephen Roach has been privately warning of an economic meltdown.
His prediction: America has no better than a 10 percent chance of avoiding economic ``armageddon.''

Press were not allowed into the meetings. But the Herald has obtained a copy of Roach's presentation. A stunned source who was at one meeting said, ``it struck me how extreme he was - much more, it seemed to me, than in public.''

Roach sees a 30 percent chance of a slump soon and a 60 percent chance that ``we'll muddle through for a while and delay the eventual armageddon.''
The long and short term results of a collapse in the dollar vary depending on who you talk to, but this much is certain, it would be a rough ride. Investors across the globe will lose money as the dollar loses value, foreign banks and other investors will be less likely to let us borrow money and essential imports like oil will jump in price.

For an administration that has no intentions of trying to wean our dependance on oil, even the slightest, which choses to fund the government through heavy borrowing, and which is paying little or no attention to the analysts and experts across the globe who are trying to warn them that their policies are driving this decline; this will be a nasty wake-up call.

The reality of the situation combined with the inexplicable refusal to re-evaluate its policies means that this administration may just drive us into the ground while claiming everything is pie in the sky.

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